Seventy-five years ago this month, California’s Standard Oil Company closed a deal with the finance minister of Saudi Arabia, a country the United States had only officially recognizedtwo years earlier. The agreement granted the oil firm an exploration contract and initiated a multifaceted and sometimes thorny bilateral economic relationship.

Today, oil

still

dominates U.S.-Saudi ties

, which went on display May 16 when President Bush met Saudi’s King Abdullah. But the fairly straightforward buy-sell dynamic between theworld’s leading importer and leading exporter of crude is increasingly complicated by a host of other issues, from security cooperation to currency concerns. Bush’s meetings withAbdullah spotlighted this complexity. The past year has witnessed a historic run-up of oil prices, and some analysts are now projecting a “super-spike” (WSJ) that could bring even greater price increases. With U.S. consumers feeling the pinch, Bush pressed Saudi officials to boost oil production as a way of easing prices. U.S. senators have already threatened to block amajor arms deal (AFP) between the countries if oil prices continue their rise. Some analysts say this focus is misguided. Given the way crude oil trades, there is only so much that can bedone by Saudi Arabia, which already produces nearly a quarter of the world’s crude. To a certain extent Riyadh already runs interference for Washington within the Organization of thePetroleum Exporting Countries (OPEC), where some member states, including Iran and Venezuela, are pushing for production cuts (IHT). Saudi’s King Abdullah, who holds significantsway in the bloc, has resisted these calls and argued that OPEC should hold production steady. Given this dynamic, few analysts were surprised when Abdullah rebuffed Bush's calls for production hikes (WSJ). Meanwhile,

a host of other issues are bubbling

.

The U

nited

S

tates

has sought a close working relationship oncounterterrorism with Saudi Arabia

, which is home to a conservative, majority Wahhabi Muslim population and is the origin of fifteen of the nineteen 9/11 hijackers.

Under pressure from Washington, Saudi Arabia has launched new efforts to crack down on militants

, including programs to findand rehabilitate jihadists (USNews). The U.S. State Department outlines the different means of counterterrorism cooperation it is pursuing with Riyadh in its 2007 Country Reports onTerrorism. These include intelligence sharing and encouraging Saudi Arabia to play a broader role as a stabilizing force in the Middle East. Along the same lines,

Washington haslong sought Riyadh’s support as a Sunni counterbalance to Shiite-dominated Iran and its proxies, including the militantgroup Hezbollah.

[Andrew, "The Sino-Saudi Energy Rapprochement," www.rice.edu/energy/publications/docs/SinoSaudiStudyFinal.pdf]However, it is not impossible to imagine shifts in US policies. Two sorts of shifts are possible. One change in policy wouldinvolve a combination of supply and

demand side policies

that

would

result in

a substantial reduction

rather than a growth

inthe US appetite for crude oil imports

. In the aftermath of September 11th, it is conceivable that the US would start to pursue policies that could substantially reduce the role of the oil in the transportation sector. Raising automobile efficiency standardscould reasonably reduced imports by 1 million b/d or more within seven years.

Enhanced R&D

in

fuel cell

technology

andhybrid vehicle technology, combined with a federal procurement program to assure that all US government owned vehicles werefueled by these non-conventional supplies

could shave

another 1 mb/d from

imports

within seven years. Under thesecircumstances,

the US would not only cease to be the high growth market for foreign oil. Its market would actuallyshrink, making it significantly less attractive for any major supplier, including Saudi Arabia